1024-00002 · Driftwood Absolute Return Fund Ltd · Engagement

engagement-letter-darf-gp-advisory.docx DOCUMENT Funds

9 / 12 ← → ✕

CALDERWOOD & HARKNESS LLP Counselors at Law

1585 Broadway, 34th Floor New York, New York 10036

Telephone: (212) 554-7200 Facsimile: (212) 554-7201 www.calderwoodharkness.com

June 11, 2024

Elaine R. Sato Deputy Chief Investment Officer Driftwood Capital Management LLC 680 Lexington Avenue, 31st Floor New York, NY 10022

Re: Engagement of Calderwood & Harkness LLP — GP Advisory Regarding Key-Person Event, Driftwood Absolute Return Fund Ltd.

Matter No.: 1024-00002

Dear Ms. Sato:

1. Introduction and Engagement Overview

Calderwood & Harkness LLP ("C&H" or the "Firm") is pleased to confirm its engagement by Driftwood Capital Management LLC ("DCM"), a Delaware limited liability company (EIN: 82-4917653), in its capacity as the General Partner of Driftwood Absolute Return Fund Ltd. ("DARF" or the "Fund"), a Cayman Islands exempted limited partnership registered with the Cayman Islands Registrar of Exempted Limited Partnerships under Registration No. ELP-87234. This engagement letter sets forth the terms and conditions under which C&H will provide legal advisory services to DCM and the Fund in connection with the Key Person Event (as defined below) and related governance matters described herein.

The Fund is governed by its Amended and Restated Limited Partnership Agreement dated March 15, 2017 (as amended from time to time, the "A&R LPA"), which is governed by the laws of the State of Delaware. The A&R LPA provides for certain key-person protections in favor of the Fund's limited partners, as more fully described in Section 3 below.

This engagement is precipitated by the medical incapacitation of Marcus J. Whitmore, Founder, Chief Investment Officer, and Managing Member (holding a ninety percent (90%) membership interest) of DCM. Mr. Whitmore suffered a severe hemorrhagic stroke on June 3, 2024, and has been incapacitated since that date. Mr. Whitmore is the sole individual designated as a "Key Person" under Section 8.04(a) of the A&R LPA. As a result of Mr. Whitmore's continued incapacitation for a period exceeding seven consecutive calendar days from the date of the medical event, a Key Person Event under Section 8.04(b) of the A&R LPA is deemed to have been triggered as of June 10, 2024 (the "Key Person Event"). The occurrence of the Key Person Event gives rise to a number of contractual obligations, rights, and remedies under the A&R LPA that require prompt legal attention and careful navigation by DCM in its capacity as General Partner of the Fund.

This engagement letter confirms the terms and conditions under which C&H will provide legal advisory services to the Clients (as defined below) in connection with the Key Person Event, including, without limitation, analysis of the A&R LPA's key-person provisions, preparation of required limited partner notifications, development of a successor governance framework, drafting of LPA amendments, and coordination of the limited partner consent solicitation process.

2. Clients

For purposes of this engagement, C&H's clients shall consist of both DCM and DARF (collectively, the "Clients").

DCM's principal office is located at 680 Lexington Avenue, 31st Floor, New York, NY 10022. DCM's registered agent for service of process in the State of Delaware is Capitol Registered Agents, Inc., located at 1209 Orange Street, Wilmington, Delaware 19801.

DARF's registered office is located at 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman, KY1-1104, Cayman Islands. DARF's registered agent in the Cayman Islands is Archipelago Corporate Services Ltd., P.O. Box 2681, George Town, Grand Cayman, KY1-1111, Cayman Islands.

It is important that the scope of this representation be clearly understood. C&H represents DCM and DARF as described herein and does not represent any individual limited partner of the Fund, the Investor Advisory Committee of the Fund (the "IAC"), or any individual member or officer of DCM in his or her personal capacity. Without limiting the generality of the foregoing, C&H does not represent Mr. Whitmore individually, nor does C&H represent any member of the IAC in his, her, or its individual or fiduciary capacity. Each such person and entity is encouraged to seek independent legal counsel to the extent such person or entity deems it necessary or appropriate.

Elaine R. Sato, in her capacity as Deputy Chief Investment Officer and Managing Member (holding a ten percent (10%) membership interest) of DCM, will serve as the primary point of contact for the Clients in connection with this engagement. All communications from C&H regarding this engagement will be directed to Ms. Sato unless otherwise instructed in writing by Ms. Sato. C&H will take direction from Ms. Sato with respect to all matters within the scope of this engagement, subject to the Firm's professional obligations.

3. Scope of Representation

C&H's representation of the Clients will encompass the following workstreams in connection with the Key Person Event triggered under Section 8.04 of the A&R LPA. Each workstream is described in further detail below.

3.1 Key-Person Event Analysis

C&H will undertake a comprehensive analysis of the mechanics and consequences of Section 8.04 of the A&R LPA, including the following:

(a) Section 8.04(a) — Definition of "Key Person." C&H will confirm the scope of the "Key Person" designation under the A&R LPA, which identifies Marcus J. Whitmore as the sole designated Key Person. C&H will analyze the definition for purposes of establishing the factual predicate for the Key Person Event and for advising on the requirements for designating any Successor Key Person(s) (as described in Section 3.3 below).

(b) Section 8.04(b) — Trigger Conditions. C&H will analyze the trigger conditions set forth in Section 8.04(b) of the A&R LPA in light of the facts surrounding Mr. Whitmore's incapacitation. Specifically, Section 8.04(b) provides that a Key Person Event is deemed to occur when the Key Person becomes unable, whether by reason of death, disability, incapacity, departure, or otherwise, to devote substantially all of his professional time and attention to the affairs of the Fund for a period of seven (7) consecutive calendar days. Based on the information provided to C&H, Mr. Whitmore has been continuously incapacitated since June 3, 2024, and the seven-consecutive-calendar-day threshold was met as of June 10, 2024. C&H will prepare a memorandum confirming the legal basis for this determination.

(c) Section 8.04(c) — Consequences of the Key Person Event. C&H will advise the Clients regarding the full range of consequences triggered by the occurrence of the Key Person Event under Section 8.04(c) of the A&R LPA, which include the following:

(i) Immediate Suspension of the Investment Period. The Investment Period (as defined in Section 1.01 of the A&R LPA) is automatically suspended upon the occurrence of a Key Person Event. During such suspension, the General Partner may not make new portfolio investments on behalf of the Fund, except as provided in clause (ii) below.

(ii) Follow-On Investment Cap. Notwithstanding the suspension of the Investment Period, the General Partner retains limited authority to make follow-on investments in existing portfolio positions in an aggregate amount not to exceed one percent (1%) of the Fund's assets under management as of the date of the Key Person Event. Based on the Fund's most recently reported AUM of approximately $2.87 billion, the follow-on investment cap is $28.7 million.

(iii) LP Notification Requirement. The General Partner is required to provide written notice to all limited partners of the occurrence of the Key Person Event within five (5) business days of the date on which the Key Person Event is deemed to have occurred. Given that the Key Person Event is deemed to have occurred on June 10, 2024, the contractual deadline for delivery of such notice is June 17, 2024.

(iv) Commencement of the 90-Calendar-Day Cure Period. Upon the occurrence of the Key Person Event, a cure period of ninety (90) calendar days (the "Cure Period") commences, during which the General Partner may propose one or more Successor Key Persons for approval by the limited partners. The Cure Period with respect to the current Key Person Event will expire on September 8, 2024.

(v) LP Consent Threshold. Approval of any proposed Successor Key Person(s) requires the affirmative written consent of limited partners holding at least sixty-six and two-thirds percent (66⅔%) of the aggregate capital commitments of all limited partners of the Fund, excluding for this purpose any co-investment by the General Partner. C&H will advise on the calculation of this threshold based on the most current LP commitment schedule maintained by the Fund's administrator.

(d) Consequences of Failure to Cure. C&H will further analyze the consequences under Section 8.04(d) of the A&R LPA if no cure is achieved within the Cure Period, including the limited partners' right to elect, by the same 66⅔% consent threshold described above, either (x) to extend the Cure Period for one or more additional periods or (y) to direct the General Partner to commence an orderly wind-down of the Fund's portfolio. C&H will advise the Clients on the mechanics, timing, and fiduciary considerations associated with each of these alternatives.

(e) Delaware Law Fiduciary Duty Analysis. C&H will advise the Clients regarding the fiduciary duties owed by DCM, as General Partner, to the limited partners of the Fund during the Key Person Event and throughout the consent solicitation process, as a matter of Delaware law. This analysis will address, among other things, the duty of care and the contractual modification of fiduciary duties under the A&R LPA, including the exculpation and indemnification provisions set forth in Article XII thereof.

3.2 LP Notification

C&H will draft the formal written notice to all forty-seven (47) limited partners of the Fund disclosing the occurrence of the Key Person Event in compliance with Section 8.04(c) of the A&R LPA (the "Key Person Notice"). The Key Person Notice will describe the factual basis for the Key Person Event, the contractual consequences thereof, the commencement and expected expiration date of the Cure Period, and the process by which the General Partner intends to propose Successor Key Person(s) for approval by the limited partners.

C&H will coordinate with Pinnacle Fund Services (Cayman) Ltd. (the "Administrator"), the Fund's third-party administrator, regarding the maintenance and accuracy of LP contact information, the appropriate method of delivery (including any notice provisions specified in the A&R LPA or in individual side letters), and the mechanics of distributing the Key Person Notice to all limited partners within the contractual timeframe. C&H will confirm with the Administrator that notice is delivered by a method that satisfies the delivery requirements of Section 15.01 of the A&R LPA.

It is critical that the Key Person Notice be delivered within the five (5) business-day contractual notification deadline, which, as noted above, falls on June 17, 2024. C&H will prioritize this workstream accordingly and will endeavor to deliver a draft of the Key Person Notice to Ms. Sato for review no later than June 13, 2024.

3.3 Successor Governance Framework

C&H will advise the Clients regarding the identification and evaluation of proposed Successor Key Person(s) and the development of a recommended successor governance framework for the Fund. This advisory work may encompass the following elements:

(a) Designation of Successor Key Person(s). C&H will advise on the criteria and process for designating one or more Successor Key Persons under the A&R LPA, including the qualifications, investment experience, and operational capabilities that limited partners are likely to consider in evaluating any proposed successor. C&H will assist in preparing biographical and professional materials for inclusion in the consent solicitation package.

(b) Establishment of an Investment Committee. In the event that the Clients determine that the successor governance framework should include the establishment of a formal Investment Committee or similar collective governance body (in lieu of, or in addition to, a sole Key Person designation), C&H will advise on the structure, composition, authority, and operating procedures of such body, and will prepare the necessary amendments to the A&R LPA to implement such structure.

(c) Modifications to Key-Person Clause Mechanics. C&H will advise on potential modifications to the key-person provisions of Section 8.04 of the A&R LPA, which may include revised replacement periods, modified trigger events (including, for example, a threshold requiring the departure or incapacitation of more than one designated Key Person before a Key Person Event is deemed to occur), and other structural changes to reduce single-person dependency risk.

(d) Carried Interest Reallocation. C&H will advise the Clients on the legal and governance considerations associated with any proposed reallocation of carried interest among GP personnel in connection with the transition, including the interplay between the carried interest provisions of the A&R LPA and the operating agreement of DCM.

(e) Designation of Senior Advisor or Emeritus Role. To the extent the Clients determine it appropriate, C&H will advise on the creation of a Senior Advisor or emeritus role for Mr. Whitmore, including the scope of any continuing economic interest, advisory responsibilities, and governance rights that may be associated with such role.

(f) Fiduciary Duty Obligations. Throughout the development of the successor governance framework, C&H will advise the Clients regarding their fiduciary duty obligations under applicable Delaware law, including the duty to act in good faith and in the best interests of the limited partners in proposing any successor governance arrangements.

3.4 LPA Amendment Drafting

C&H will prepare one or more amendments to the A&R LPA (each, an "LPA Amendment") to implement the successor governance framework developed pursuant to Section 3.3 above. It is anticipated that the LPA Amendments will include modifications to the following provisions of the A&R LPA, among others:

(a) Section 8.04 (Key Person), to reflect the designation of Successor Key Person(s) and any revised key-person clause mechanics;

(b) Section 9.02 (Investor Advisory Committee), to the extent any changes to the composition, authority, or procedures of the IAC are contemplated in connection with the successor governance framework;

(d) Related schedules and exhibits, including the schedule of Key Persons attached to the A&R LPA.

All LPA Amendments will be subject to the consent requirements set forth in Section 14.01 of the A&R LPA, which generally requires the written consent of the General Partner and limited partners holding at least 66⅔% of aggregate LP capital commitments (excluding GP co-investment) for amendments to certain specified provisions, including Section 8.04. C&H will advise the Clients regarding the applicable consent thresholds for each proposed amendment.

3.5 LP Consent Solicitation

C&H will advise on and coordinate the consent solicitation process necessary to obtain limited partner approval of the proposed Successor Key Person(s) and the related LPA Amendments. This workstream will include the following:

(a) Successor Key Person Proposal Letter. C&H will draft a detailed letter to all limited partners setting forth the proposed Successor Key Person(s), the rationale for the proposed designation(s), the terms of the proposed successor governance framework, and a summary of the proposed LPA Amendments (the "Proposal Letter"). The Proposal Letter will be designed to provide limited partners with all information reasonably necessary to make an informed decision regarding the proposed successor arrangements.

(b) Form of LP Written Consent. C&H will prepare a Form of LP Written Consent (the "Consent Form") for execution by limited partners approving the proposed Successor Key Person(s) and the related LPA Amendments. The Consent Form will be structured to comply with the requirements of Section 14.01 and Section 8.04(c) of the A&R LPA.

(c) Coordination of Consent Solicitation Process. C&H will coordinate the distribution of the Proposal Letter and Consent Form to all forty-seven (47) limited partners, working in conjunction with the Administrator to ensure accurate and timely delivery. C&H will manage the consent solicitation timeline with a view toward obtaining the requisite LP consents prior to the expiration of the Cure Period on September 8, 2024.

(d) Tabulation and Certification. C&H will tabulate the LP consents received and prepare a closing certificate confirming that the requisite consent threshold (66⅔% of aggregate LP capital commitments, excluding GP co-investment) has been satisfied and that the LPA Amendments are effective as of the date specified therein (the "Closing Certificate").

(e) Engagement with IAC Counsel. C&H will engage with counsel to the Investor Advisory Committee, Wexford Crane & Albright LLP, as necessary and appropriate regarding the IAC's review of and comments on the proposed Successor Key Person(s), the successor governance framework, and the LPA Amendments. C&H will coordinate with the Clients regarding any modifications to the proposed arrangements that may be requested by the IAC or its counsel.

4. Limitations on Scope

The Clients should be aware of the following limitations on the scope of C&H's engagement:

(a) Cayman Islands Law. C&H does not provide legal advice regarding the laws of the Cayman Islands. The Clients should consult separately with qualified Cayman Islands counsel regarding any Cayman Islands regulatory, partnership law, or other legal matters that may arise in connection with the Key Person Event or the transactions contemplated by this engagement, including any filings or notifications required under Cayman Islands law in connection with changes to the Fund's governance structure.

(b) Tax Advice. C&H is not engaged to provide tax advice in connection with this engagement. The Clients should consult their own tax advisors regarding the U.S. federal, state, local, and non-U.S. tax implications of any carried interest reallocation, structural changes to the Fund or DCM, or other transactions contemplated by this engagement.

(c) Investment Advice. C&H is not engaged to provide investment advice or to evaluate the investment merits of any portfolio positions held by the Fund. The Clients acknowledge that any decisions regarding the management, disposition, or retention of portfolio positions during the suspension of the Investment Period or otherwise are solely the responsibility of the Clients and their investment professionals.

(d) Third-Party Service Providers. C&H does not represent the Fund's independent auditor (Graystone & Whitfield LLP), the Fund's prime broker (Halcyon Securities International Ltd.), the Administrator, or any other third-party service provider to the Fund or DCM. Each such service provider is represented by its own counsel, and the Clients should not assume that C&H's representation extends to any of those parties.

(e) Litigation and Regulatory Matters. This engagement does not extend to any litigation, arbitration, regulatory investigation, enforcement action, or other adversarial or contested proceeding, whether existing or threatened, unless separately agreed in writing between C&H and the Clients. In the event any such matter arises during the course of this engagement, C&H will promptly advise the Clients and, if requested, discuss the terms of a separate engagement to address such matter.

5. Engagement Team

C&H has assigned the following professionals to this engagement:

Graham Sutherland will serve as the responsible partner overseeing all legal advice rendered in connection with this engagement. Mr. Sutherland will be the Clients' primary legal point of contact for substantive matters, and all material legal memoranda, draft documents, and advice letters will be reviewed and approved by Mr. Sutherland prior to delivery to the Clients.

Pamela Cross will serve as the billing partner responsible for fee arrangements, invoicing, and all financial aspects of the engagement. Any questions regarding billing, fees, or disbursements should be directed to Ms. Cross.

Stephen Adler will serve as the lead associate responsible for the day-to-day execution of the engagement workstreams described in Section 3 above, under the supervision of Mr. Sutherland. Theresa Kim will support Mr. Adler on all workstreams, with particular focus on document drafting and consent solicitation logistics.

C&H may assign additional attorneys, paralegals, or other professionals to this engagement as reasonably necessary to ensure the timely and effective completion of the workstreams described herein. C&H will provide prior notice to Ms. Sato before assigning any additional professionals whose time will be billed to the Clients.

6. Fee Arrangement

6.1 Hourly Rates

Services rendered by C&H attorneys in connection with this engagement will be billed on an hourly basis at the following standard rates:

• Partners: $1,650 per hour

• Associates: $895 per hour

The foregoing rates are effective as of the date of this engagement letter and are subject to annual adjustment in accordance with C&H's standard rate-setting process. C&H will provide the Clients with at least thirty (30) days' prior written notice of any rate increase. Paralegal and other support staff time, if any, will be billed at rates communicated to the Clients in advance.

6.2 Fee Cap

Total professional fees for the engagement shall not exceed Three Hundred Eighty-Five Thousand Dollars ($385,000) (the "Fee Cap") without the prior written consent of the Clients. The Fee Cap encompasses all professional fees of C&H attorneys assigned to this engagement for the workstreams described in Section 3 above. In the event C&H anticipates that total fees may approach or exceed the Fee Cap, C&H will promptly notify the Clients and discuss whether an adjustment to the Fee Cap is warranted. No fees in excess of the Fee Cap will be billed to the Clients absent prior written authorization from Ms. Sato or another authorized representative of DCM. The Fee Cap does not include out-of-pocket disbursements, which are addressed separately in Section 6.3 below.

6.3 Disbursements and Expenses

The Clients will reimburse C&H for reasonable out-of-pocket disbursements incurred in connection with this engagement, including, without limitation, costs of document production, photocopying, overnight courier and delivery charges, filing fees, database and research charges, and travel expenses (including airfare, lodging, and ground transportation), if any. All disbursements will be billed at cost, without markup. Disbursements are not subject to the Fee Cap set forth in Section 6.2. C&H will exercise reasonable judgment in incurring disbursements and will obtain the Clients' prior approval before incurring any single disbursement in excess of Five Thousand Dollars ($5,000).

6.4 Billing and Payment

C&H will issue monthly invoices to DCM at the address set forth in Section 2 above (or to such other address as DCM may designate in writing). Each invoice will include a reasonably detailed description of the services rendered and disbursements incurred during the applicable billing period. Invoices are payable within thirty (30) days of receipt. C&H reserves the right to suspend the performance of services in the event of non-payment of any invoice for a period exceeding sixty (60) days following the date of such invoice, provided that C&H shall provide at least ten (10) days' prior written notice to the Clients before exercising such right.

7. Governing Law

This engagement letter and the terms and conditions set forth herein shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles that would result in the application of the laws of any other jurisdiction.

For the avoidance of doubt, the A&R LPA is governed by the laws of the State of Delaware, and C&H's analysis and advice rendered under this engagement with respect to the interpretation and enforcement of the provisions of the A&R LPA, including Section 8.04 and the fiduciary duties of the General Partner, will apply the substantive law of the State of Delaware. Nothing in this Section 7 is intended to alter the governing law of the A&R LPA or any other agreement to which the Clients are a party.

8. Conflicts of Interest

C&H has conducted a conflicts check in accordance with the Firm's standard procedures and the applicable rules of professional conduct. Based on the results of that check, C&H confirms that it is not aware of any current conflict of interest that would preclude the Firm from undertaking this engagement on behalf of the Clients.

C&H confirms that it does not currently represent any limited partner of the Fund, any member of the Investor Advisory Committee, or the IAC's counsel, Wexford Crane & Albright LLP, in any matter related to the Fund, DCM, or the Key Person Event. C&H may represent other clients in matters unrelated to this engagement, and the Clients acknowledge that such representations do not constitute a conflict of interest for purposes of this engagement.

In the event that a conflict of interest arises during the course of this engagement, C&H will promptly notify the Clients and take appropriate steps in accordance with the applicable rules of professional conduct governing attorneys admitted to practice in the State of New York, including, where appropriate, seeking a waiver of the conflict or, if necessary, withdrawing from the engagement.

9. Confidentiality

C&H will maintain the confidentiality of all information received from or on behalf of the Clients in connection with this engagement, consistent with the Firm's professional responsibility obligations under the applicable rules of professional conduct and the protections afforded by the attorney-client privilege and the work product doctrine. C&H will implement reasonable safeguards to protect the confidentiality of such information within the Firm.

Notwithstanding the foregoing, C&H may disclose confidential information: (a) as required by applicable law, regulation, or court order; (b) as authorized or directed by the Clients; or (c) to the extent reasonably necessary in connection with the performance of the services described in this engagement letter, including, without limitation, in communications with the Administrator, counsel to the IAC, or other third parties as directed by the Clients.

10. Document Retention

Upon completion of the engagement, C&H will retain client files (including electronic files) in accordance with the Firm's document retention policy, which currently provides for retention of engagement files for a period of ten (10) years from the date of engagement closure. Following the expiration of such retention period, C&H may destroy or dispose of the engagement files without further notice to or consent from the Clients, unless the Clients have previously requested the return of such files.

Original documents provided by the Clients to C&H during the course of this engagement will be returned to the Clients upon written request. C&H may retain copies of such original documents in accordance with the retention policy described above.

11. Termination

Either party may terminate this engagement at any time upon thirty (30) days' prior written notice to the other party. In the event of termination by either party, the Clients will remain responsible for payment of all fees and disbursements incurred by C&H through the effective date of termination, subject to the Fee Cap set forth in Section 6.2.

Upon termination, C&H will cooperate in the orderly transition of the matter to successor counsel designated by the Clients, including the prompt delivery of all work product, client files, and other materials in C&H's possession that are necessary for successor counsel to continue the representation. C&H's obligation to assist in the orderly transition of the matter shall survive the termination of this engagement.

12. Acceptance

We would appreciate it if you would confirm the Clients' acceptance of the terms set forth in this engagement letter by signing and returning a copy of this letter to the undersigned at your earliest convenience. This engagement shall be deemed to have commenced as of June 11, 2024, upon your execution of this letter. If you have any questions regarding the terms of this engagement, please do not hesitate to contact either of the undersigned.

We look forward to working with you and the Driftwood team on this important matter.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Name: Graham Sutherland

Title: Partner, Funds & Asset Management

(Responsible Partner)

By: ________

Name: Pamela Cross

Title: Partner, Funds & Asset Management

(Billing Partner)

AGREED AND ACCEPTED:

DRIFTWOOD CAPITAL MANAGEMENT LLC, as General Partner of Driftwood Absolute Return Fund Ltd.

By: ________

Name: Elaine R. Sato

Title: Deputy Chief Investment Officer

Date: ________

Enclosures: None

cc: Graham Sutherland, Stephen Adler, Theresa Kim (Calderwood & Harkness LLP — internal file)

Name	Role	Title
Graham Sutherland	Responsible Partner	Partner, Funds & Asset Management
Pamela Cross	Billing Partner	Partner, Funds & Asset Management
Stephen Adler	Lead Associate	Associate, Funds & Asset Management
Theresa Kim	Working Associate	Associate, Funds & Asset Management

CALDERWOOD & HARKNESS LLP Counselors at Law
1585 Broadway, 34th Floor New York, New York 10036
Telephone: (212) 554-7200 Facsimile: (212) 554-7201 www.calderwoodharkness.com
June 11, 2024
Elaine R. Sato Deputy Chief Investment Officer Driftwood Capital Management LLC 680 Lexington Avenue, 31st Floor New York, NY 10022
Re: Engagement of Calderwood & Harkness LLP — GP Advisory Regarding Key-Person Event, Driftwood Absolute Return Fund Ltd.
Matter No.: 1024-00002
Dear Ms. Sato:
1. Introduction and Engagement Overview
Calderwood & Harkness LLP ("C&H" or the "Firm") is pleased to confirm its engagement by Driftwood Capital Management LLC ("DCM"), a Delaware limited liability company (EIN: 82-4917653), in its capacity as the General Partner of Driftwood Absolute Return Fund Ltd. ("DARF" or the "Fund"), a Cayman Islands exempted limited partnership registered with the Cayman Islands Registrar of Exempted Limited Partnerships under Registration No. ELP-87234. This engagement letter sets forth the terms and conditions under which C&H will provide legal advisory services to DCM and the Fund in connection with the Key Person Event (as defined below) and related governance matters described herein.
The Fund is governed by its Amended and Restated Limited Partnership Agreement dated March 15, 2017 (as amended from time to time, the "A&R LPA"), which is governed by the laws of the State of Delaware. The A&R LPA provides for certain key-person protections in favor of the Fund's limited partners, as more fully described in Section 3 below.
This engagement is precipitated by the medical incapacitation of Marcus J. Whitmore, Founder, Chief Investment Officer, and Managing Member (holding a ninety percent (90%) membership interest) of DCM. Mr. Whitmore suffered a severe hemorrhagic stroke on June 3, 2024, and has been incapacitated since that date. Mr. Whitmore is the sole individual designated as a "Key Person" under Section 8.04(a) of the A&R LPA. As a result of Mr. Whitmore's continued incapacitation for a period exceeding seven consecutive calendar days from the date of the medical event, a Key Person Event under Section 8.04(b) of the A&R LPA is deemed to have been triggered as of June 10, 2024 (the "Key Person Event"). The occurrence of the Key Person Event gives rise to a number of contractual obligations, rights, and remedies under the A&R LPA that require prompt legal attention and careful navigation by DCM in its capacity as General Partner of the Fund.
This engagement letter confirms the terms and conditions under which C&H will provide legal advisory services to the Clients (as defined below) in connection with the Key Person Event, including, without limitation, analysis of the A&R LPA's key-person provisions, preparation of required limited partner notifications, development of a successor governance framework, drafting of LPA amendments, and coordination of the limited partner consent solicitation process.
2. Clients
For purposes of this engagement, C&H's clients shall consist of both DCM and DARF (collectively, the "Clients").
DCM's principal office is located at 680 Lexington Avenue, 31st Floor, New York, NY 10022. DCM's registered agent for service of process in the State of Delaware is Capitol Registered Agents, Inc., located at 1209 Orange Street, Wilmington, Delaware 19801.
DARF's registered office is located at 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman, KY1-1104, Cayman Islands. DARF's registered agent in the Cayman Islands is Archipelago Corporate Services Ltd., P.O. Box 2681, George Town, Grand Cayman, KY1-1111, Cayman Islands.
It is important that the scope of this representation be clearly understood. C&H represents DCM and DARF as described herein and does not represent any individual limited partner of the Fund, the Investor Advisory Committee of the Fund (the "IAC"), or any individual member or officer of DCM in his or her personal capacity. Without limiting the generality of the foregoing, C&H does not represent Mr. Whitmore individually, nor does C&H represent any member of the IAC in his, her, or its individual or fiduciary capacity. Each such person and entity is encouraged to seek independent legal counsel to the extent such person or entity deems it necessary or appropriate.
Elaine R. Sato, in her capacity as Deputy Chief Investment Officer and Managing Member (holding a ten percent (10%) membership interest) of DCM, will serve as the primary point of contact for the Clients in connection with this engagement. All communications from C&H regarding this engagement will be directed to Ms. Sato unless otherwise instructed in writing by Ms. Sato. C&H will take direction from Ms. Sato with respect to all matters within the scope of this engagement, subject to the Firm's professional obligations.
3. Scope of Representation
C&H's representation of the Clients will encompass the following workstreams in connection with the Key Person Event triggered under Section 8.04 of the A&R LPA. Each workstream is described in further detail below.
3.1 Key-Person Event Analysis
C&H will undertake a comprehensive analysis of the mechanics and consequences of Section 8.04 of the A&R LPA, including the following:
(a) Section 8.04(a) — Definition of "Key Person." C&H will confirm the scope of the "Key Person" designation under the A&R LPA, which identifies Marcus J. Whitmore as the sole designated Key Person. C&H will analyze the definition for purposes of establishing the factual predicate for the Key Person Event and for advising on the requirements for designating any Successor Key Person(s) (as described in Section 3.3 below).
(b) Section 8.04(b) — Trigger Conditions. C&H will analyze the trigger conditions set forth in Section 8.04(b) of the A&R LPA in light of the facts surrounding Mr. Whitmore's incapacitation. Specifically, Section 8.04(b) provides that a Key Person Event is deemed to occur when the Key Person becomes unable, whether by reason of death, disability, incapacity, departure, or otherwise, to devote substantially all of his professional time and attention to the affairs of the Fund for a period of seven (7) consecutive calendar days. Based on the information provided to C&H, Mr. Whitmore has been continuously incapacitated since June 3, 2024, and the seven-consecutive-calendar-day threshold was met as of June 10, 2024. C&H will prepare a memorandum confirming the legal basis for this determination.
(c) Section 8.04(c) — Consequences of the Key Person Event. C&H will advise the Clients regarding the full range of consequences triggered by the occurrence of the Key Person Event under Section 8.04(c) of the A&R LPA, which include the following:
(i) Immediate Suspension of the Investment Period. The Investment Period (as defined in Section 1.01 of the A&R LPA) is automatically suspended upon the occurrence of a Key Person Event. During such suspension, the General Partner may not make new portfolio investments on behalf of the Fund, except as provided in clause (ii) below.
(ii) Follow-On Investment Cap. Notwithstanding the suspension of the Investment Period, the General Partner retains limited authority to make follow-on investments in existing portfolio positions in an aggregate amount not to exceed one percent (1%) of the Fund's assets under management as of the date of the Key Person Event. Based on the Fund's most recently reported AUM of approximately $2.87 billion, the follow-on investment cap is $28.7 million.
(iii) LP Notification Requirement. The General Partner is required to provide written notice to all limited partners of the occurrence of the Key Person Event within five (5) business days of the date on which the Key Person Event is deemed to have occurred. Given that the Key Person Event is deemed to have occurred on June 10, 2024, the contractual deadline for delivery of such notice is June 17, 2024.
(iv) Commencement of the 90-Calendar-Day Cure Period. Upon the occurrence of the Key Person Event, a cure period of ninety (90) calendar days (the "Cure Period") commences, during which the General Partner may propose one or more Successor Key Persons for approval by the limited partners. The Cure Period with respect to the current Key Person Event will expire on September 8, 2024.
(v) LP Consent Threshold. Approval of any proposed Successor Key Person(s) requires the affirmative written consent of limited partners holding at least sixty-six and two-thirds percent (66⅔%) of the aggregate capital commitments of all limited partners of the Fund, excluding for this purpose any co-investment by the General Partner. C&H will advise on the calculation of this threshold based on the most current LP commitment schedule maintained by the Fund's administrator.
(d) Consequences of Failure to Cure. C&H will further analyze the consequences under Section 8.04(d) of the A&R LPA if no cure is achieved within the Cure Period, including the limited partners' right to elect, by the same 66⅔% consent threshold described above, either (x) to extend the Cure Period for one or more additional periods or (y) to direct the General Partner to commence an orderly wind-down of the Fund's portfolio. C&H will advise the Clients on the mechanics, timing, and fiduciary considerations associated with each of these alternatives.
(e) Delaware Law Fiduciary Duty Analysis. C&H will advise the Clients regarding the fiduciary duties owed by DCM, as General Partner, to the limited partners of the Fund during the Key Person Event and throughout the consent solicitation process, as a matter of Delaware law. This analysis will address, among other things, the duty of care and the contractual modification of fiduciary duties under the A&R LPA, including the exculpation and indemnification provisions set forth in Article XII thereof.
3.2 LP Notification
C&H will draft the formal written notice to all forty-seven (47) limited partners of the Fund disclosing the occurrence of the Key Person Event in compliance with Section 8.04(c) of the A&R LPA (the "Key Person Notice"). The Key Person Notice will describe the factual basis for the Key Person Event, the contractual consequences thereof, the commencement and expected expiration date of the Cure Period, and the process by which the General Partner intends to propose Successor Key Person(s) for approval by the limited partners.
C&H will coordinate with Pinnacle Fund Services (Cayman) Ltd. (the "Administrator"), the Fund's third-party administrator, regarding the maintenance and accuracy of LP contact information, the appropriate method of delivery (including any notice provisions specified in the A&R LPA or in individual side letters), and the mechanics of distributing the Key Person Notice to all limited partners within the contractual timeframe. C&H will confirm with the Administrator that notice is delivered by a method that satisfies the delivery requirements of Section 15.01 of the A&R LPA.
It is critical that the Key Person Notice be delivered within the five (5) business-day contractual notification deadline, which, as noted above, falls on June 17, 2024. C&H will prioritize this workstream accordingly and will endeavor to deliver a draft of the Key Person Notice to Ms. Sato for review no later than June 13, 2024.
3.3 Successor Governance Framework
C&H will advise the Clients regarding the identification and evaluation of proposed Successor Key Person(s) and the development of a recommended successor governance framework for the Fund. This advisory work may encompass the following elements:
(a) Designation of Successor Key Person(s). C&H will advise on the criteria and process for designating one or more Successor Key Persons under the A&R LPA, including the qualifications, investment experience, and operational capabilities that limited partners are likely to consider in evaluating any proposed successor. C&H will assist in preparing biographical and professional materials for inclusion in the consent solicitation package.
(b) Establishment of an Investment Committee. In the event that the Clients determine that the successor governance framework should include the establishment of a formal Investment Committee or similar collective governance body (in lieu of, or in addition to, a sole Key Person designation), C&H will advise on the structure, composition, authority, and operating procedures of such body, and will prepare the necessary amendments to the A&R LPA to implement such structure.
(c) Modifications to Key-Person Clause Mechanics. C&H will advise on potential modifications to the key-person provisions of Section 8.04 of the A&R LPA, which may include revised replacement periods, modified trigger events (including, for example, a threshold requiring the departure or incapacitation of more than one designated Key Person before a Key Person Event is deemed to occur), and other structural changes to reduce single-person dependency risk.
(d) Carried Interest Reallocation. C&H will advise the Clients on the legal and governance considerations associated with any proposed reallocation of carried interest among GP personnel in connection with the transition, including the interplay between the carried interest provisions of the A&R LPA and the operating agreement of DCM.
(e) Designation of Senior Advisor or Emeritus Role. To the extent the Clients determine it appropriate, C&H will advise on the creation of a Senior Advisor or emeritus role for Mr. Whitmore, including the scope of any continuing economic interest, advisory responsibilities, and governance rights that may be associated with such role.
(f) Fiduciary Duty Obligations. Throughout the development of the successor governance framework, C&H will advise the Clients regarding their fiduciary duty obligations under applicable Delaware law, including the duty to act in good faith and in the best interests of the limited partners in proposing any successor governance arrangements.
3.4 LPA Amendment Drafting
C&H will prepare one or more amendments to the A&R LPA (each, an "LPA Amendment") to implement the successor governance framework developed pursuant to Section 3.3 above. It is anticipated that the LPA Amendments will include modifications to the following provisions of the A&R LPA, among others:
(a) Section 8.04 (Key Person), to reflect the designation of Successor Key Person(s) and any revised key-person clause mechanics;
(b) Section 9.02 (Investor Advisory Committee), to the extent any changes to the composition, authority, or procedures of the IAC are contemplated in connection with the successor governance framework;
(c) Section 14.01 (Amendments), to the extent any changes to the amendment mechanics are necessary or advisable; and
(d) Related schedules and exhibits, including the schedule of Key Persons attached to the A&R LPA.
All LPA Amendments will be subject to the consent requirements set forth in Section 14.01 of the A&R LPA, which generally requires the written consent of the General Partner and limited partners holding at least 66⅔% of aggregate LP capital commitments (excluding GP co-investment) for amendments to certain specified provisions, including Section 8.04. C&H will advise the Clients regarding the applicable consent thresholds for each proposed amendment.
3.5 LP Consent Solicitation
C&H will advise on and coordinate the consent solicitation process necessary to obtain limited partner approval of the proposed Successor Key Person(s) and the related LPA Amendments. This workstream will include the following:
(a) Successor Key Person Proposal Letter. C&H will draft a detailed letter to all limited partners setting forth the proposed Successor Key Person(s), the rationale for the proposed designation(s), the terms of the proposed successor governance framework, and a summary of the proposed LPA Amendments (the "Proposal Letter"). The Proposal Letter will be designed to provide limited partners with all information reasonably necessary to make an informed decision regarding the proposed successor arrangements.
(b) Form of LP Written Consent. C&H will prepare a Form of LP Written Consent (the "Consent Form") for execution by limited partners approving the proposed Successor Key Person(s) and the related LPA Amendments. The Consent Form will be structured to comply with the requirements of Section 14.01 and Section 8.04(c) of the A&R LPA.
(c) Coordination of Consent Solicitation Process. C&H will coordinate the distribution of the Proposal Letter and Consent Form to all forty-seven (47) limited partners, working in conjunction with the Administrator to ensure accurate and timely delivery. C&H will manage the consent solicitation timeline with a view toward obtaining the requisite LP consents prior to the expiration of the Cure Period on September 8, 2024.
(d) Tabulation and Certification. C&H will tabulate the LP consents received and prepare a closing certificate confirming that the requisite consent threshold (66⅔% of aggregate LP capital commitments, excluding GP co-investment) has been satisfied and that the LPA Amendments are effective as of the date specified therein (the "Closing Certificate").
(e) Engagement with IAC Counsel. C&H will engage with counsel to the Investor Advisory Committee, Wexford Crane & Albright LLP, as necessary and appropriate regarding the IAC's review of and comments on the proposed Successor Key Person(s), the successor governance framework, and the LPA Amendments. C&H will coordinate with the Clients regarding any modifications to the proposed arrangements that may be requested by the IAC or its counsel.
4. Limitations on Scope
The Clients should be aware of the following limitations on the scope of C&H's engagement:
(a) Cayman Islands Law. C&H does not provide legal advice regarding the laws of the Cayman Islands. The Clients should consult separately with qualified Cayman Islands counsel regarding any Cayman Islands regulatory, partnership law, or other legal matters that may arise in connection with the Key Person Event or the transactions contemplated by this engagement, including any filings or notifications required under Cayman Islands law in connection with changes to the Fund's governance structure.
(b) Tax Advice. C&H is not engaged to provide tax advice in connection with this engagement. The Clients should consult their own tax advisors regarding the U.S. federal, state, local, and non-U.S. tax implications of any carried interest reallocation, structural changes to the Fund or DCM, or other transactions contemplated by this engagement.
(c) Investment Advice. C&H is not engaged to provide investment advice or to evaluate the investment merits of any portfolio positions held by the Fund. The Clients acknowledge that any decisions regarding the management, disposition, or retention of portfolio positions during the suspension of the Investment Period or otherwise are solely the responsibility of the Clients and their investment professionals.
(d) Third-Party Service Providers. C&H does not represent the Fund's independent auditor (Graystone & Whitfield LLP), the Fund's prime broker (Halcyon Securities International Ltd.), the Administrator, or any other third-party service provider to the Fund or DCM. Each such service provider is represented by its own counsel, and the Clients should not assume that C&H's representation extends to any of those parties.
(e) Litigation and Regulatory Matters. This engagement does not extend to any litigation, arbitration, regulatory investigation, enforcement action, or other adversarial or contested proceeding, whether existing or threatened, unless separately agreed in writing between C&H and the Clients. In the event any such matter arises during the course of this engagement, C&H will promptly advise the Clients and, if requested, discuss the terms of a separate engagement to address such matter.
5. Engagement Team
C&H has assigned the following professionals to this engagement:
Graham Sutherland will serve as the responsible partner overseeing all legal advice rendered in connection with this engagement. Mr. Sutherland will be the Clients' primary legal point of contact for substantive matters, and all material legal memoranda, draft documents, and advice letters will be reviewed and approved by Mr. Sutherland prior to delivery to the Clients.
Pamela Cross will serve as the billing partner responsible for fee arrangements, invoicing, and all financial aspects of the engagement. Any questions regarding billing, fees, or disbursements should be directed to Ms. Cross.
Stephen Adler will serve as the lead associate responsible for the day-to-day execution of the engagement workstreams described in Section 3 above, under the supervision of Mr. Sutherland. Theresa Kim will support Mr. Adler on all workstreams, with particular focus on document drafting and consent solicitation logistics.
C&H may assign additional attorneys, paralegals, or other professionals to this engagement as reasonably necessary to ensure the timely and effective completion of the workstreams described herein. C&H will provide prior notice to Ms. Sato before assigning any additional professionals whose time will be billed to the Clients.
6. Fee Arrangement
6.1 Hourly Rates
Services rendered by C&H attorneys in connection with this engagement will be billed on an hourly basis at the following standard rates:
•  Partners: $1,650 per hour
•  Associates: $895 per hour
The foregoing rates are effective as of the date of this engagement letter and are subject to annual adjustment in accordance with C&H's standard rate-setting process. C&H will provide the Clients with at least thirty (30) days' prior written notice of any rate increase. Paralegal and other support staff time, if any, will be billed at rates communicated to the Clients in advance.
6.2 Fee Cap
Total professional fees for the engagement shall not exceed Three Hundred Eighty-Five Thousand Dollars ($385,000) (the "Fee Cap") without the prior written consent of the Clients. The Fee Cap encompasses all professional fees of C&H attorneys assigned to this engagement for the workstreams described in Section 3 above. In the event C&H anticipates that total fees may approach or exceed the Fee Cap, C&H will promptly notify the Clients and discuss whether an adjustment to the Fee Cap is warranted. No fees in excess of the Fee Cap will be billed to the Clients absent prior written authorization from Ms. Sato or another authorized representative of DCM. The Fee Cap does not include out-of-pocket disbursements, which are addressed separately in Section 6.3 below.
6.3 Disbursements and Expenses
The Clients will reimburse C&H for reasonable out-of-pocket disbursements incurred in connection with this engagement, including, without limitation, costs of document production, photocopying, overnight courier and delivery charges, filing fees, database and research charges, and travel expenses (including airfare, lodging, and ground transportation), if any. All disbursements will be billed at cost, without markup. Disbursements are not subject to the Fee Cap set forth in Section 6.2. C&H will exercise reasonable judgment in incurring disbursements and will obtain the Clients' prior approval before incurring any single disbursement in excess of Five Thousand Dollars ($5,000).
6.4 Billing and Payment
C&H will issue monthly invoices to DCM at the address set forth in Section 2 above (or to such other address as DCM may designate in writing). Each invoice will include a reasonably detailed description of the services rendered and disbursements incurred during the applicable billing period. Invoices are payable within thirty (30) days of receipt. C&H reserves the right to suspend the performance of services in the event of non-payment of any invoice for a period exceeding sixty (60) days following the date of such invoice, provided that C&H shall provide at least ten (10) days' prior written notice to the Clients before exercising such right.
7. Governing Law
This engagement letter and the terms and conditions set forth herein shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles that would result in the application of the laws of any other jurisdiction.
For the avoidance of doubt, the A&R LPA is governed by the laws of the State of Delaware, and C&H's analysis and advice rendered under this engagement with respect to the interpretation and enforcement of the provisions of the A&R LPA, including Section 8.04 and the fiduciary duties of the General Partner, will apply the substantive law of the State of Delaware. Nothing in this Section 7 is intended to alter the governing law of the A&R LPA or any other agreement to which the Clients are a party.
8. Conflicts of Interest
C&H has conducted a conflicts check in accordance with the Firm's standard procedures and the applicable rules of professional conduct. Based on the results of that check, C&H confirms that it is not aware of any current conflict of interest that would preclude the Firm from undertaking this engagement on behalf of the Clients.
C&H confirms that it does not currently represent any limited partner of the Fund, any member of the Investor Advisory Committee, or the IAC's counsel, Wexford Crane & Albright LLP, in any matter related to the Fund, DCM, or the Key Person Event. C&H may represent other clients in matters unrelated to this engagement, and the Clients acknowledge that such representations do not constitute a conflict of interest for purposes of this engagement.
In the event that a conflict of interest arises during the course of this engagement, C&H will promptly notify the Clients and take appropriate steps in accordance with the applicable rules of professional conduct governing attorneys admitted to practice in the State of New York, including, where appropriate, seeking a waiver of the conflict or, if necessary, withdrawing from the engagement.
9. Confidentiality
C&H will maintain the confidentiality of all information received from or on behalf of the Clients in connection with this engagement, consistent with the Firm's professional responsibility obligations under the applicable rules of professional conduct and the protections afforded by the attorney-client privilege and the work product doctrine. C&H will implement reasonable safeguards to protect the confidentiality of such information within the Firm.
Notwithstanding the foregoing, C&H may disclose confidential information: (a) as required by applicable law, regulation, or court order; (b) as authorized or directed by the Clients; or (c) to the extent reasonably necessary in connection with the performance of the services described in this engagement letter, including, without limitation, in communications with the Administrator, counsel to the IAC, or other third parties as directed by the Clients.
10. Document Retention
Upon completion of the engagement, C&H will retain client files (including electronic files) in accordance with the Firm's document retention policy, which currently provides for retention of engagement files for a period of ten (10) years from the date of engagement closure. Following the expiration of such retention period, C&H may destroy or dispose of the engagement files without further notice to or consent from the Clients, unless the Clients have previously requested the return of such files.
Original documents provided by the Clients to C&H during the course of this engagement will be returned to the Clients upon written request. C&H may retain copies of such original documents in accordance with the retention policy described above.
11. Termination
Either party may terminate this engagement at any time upon thirty (30) days' prior written notice to the other party. In the event of termination by either party, the Clients will remain responsible for payment of all fees and disbursements incurred by C&H through the effective date of termination, subject to the Fee Cap set forth in Section 6.2.
Upon termination, C&H will cooperate in the orderly transition of the matter to successor counsel designated by the Clients, including the prompt delivery of all work product, client files, and other materials in C&H's possession that are necessary for successor counsel to continue the representation. C&H's obligation to assist in the orderly transition of the matter shall survive the termination of this engagement.
12. Acceptance
We would appreciate it if you would confirm the Clients' acceptance of the terms set forth in this engagement letter by signing and returning a copy of this letter to the undersigned at your earliest convenience. This engagement shall be deemed to have commenced as of June 11, 2024, upon your execution of this letter. If you have any questions regarding the terms of this engagement, please do not hesitate to contact either of the undersigned.
We look forward to working with you and the Driftwood team on this important matter.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Graham Sutherland
Title: Partner, Funds & Asset Management
(Responsible Partner)
By: ________
Name: Pamela Cross
Title: Partner, Funds & Asset Management
(Billing Partner)
AGREED AND ACCEPTED:
DRIFTWOOD CAPITAL MANAGEMENT LLC, as General Partner of Driftwood Absolute Return Fund Ltd.
By: ________
Name: Elaine R. Sato
Title: Deputy Chief Investment Officer
Date: ________
Enclosures: None
cc: Graham Sutherland, Stephen Adler, Theresa Kim (Calderwood & Harkness LLP — internal file)
Name | Role | Title
Graham Sutherland | Responsible Partner | Partner, Funds & Asset Management
Pamela Cross | Billing Partner | Partner, Funds & Asset Management
Stephen Adler | Lead Associate | Associate, Funds & Asset Management
Theresa Kim | Working Associate | Associate, Funds & Asset Management

CALDERWOOD & HARKNESS LLP Counselors at Law

CALDERWOOD & HARKNESS LLP

AGREED AND ACCEPTED:

Record

Parties

Dates

Amounts